The central bank buys worth of bonds in the open market from Joe, who deposits the proceeds in his checking account at Bank. The required reserve ratio is . (a) What is the amount by which Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans Bank can initially make as a result of Joe’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in

The central bank buys worth of bonds in the open market from Joe, who deposits the proceeds in his checking account at Bank. The required reserve ratio is . (a) What is the amount by which Bank’s liabilities have changed? Explain. (b) Calculate the change in required reserves for Bank. Show your work. (c) What is the dollar value of the maximum amount of new loans Bank can initially make as a result of Joe’s deposit? Explain. (d) Based on the central bank’s open-market purchase of bonds, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work. (e) How will the change in the money supply in part (d) affect aggregate demand and the price level in

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 2.3P

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